A comprehensive framework would reduce unnecessary collateral demands and improve U.S. market efficiency
Washington, D.C. — MFA supported the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) proposal to expand portfolio and cross-margining of securities and derivatives in a comment letter submitted today. MFA encouraged the Commissions to replace the current ad hoc, product-by-product approach with a comprehensive framework for cross-margining.
Cross-margining allows market participants to account for positions that offset one another when calculating collateral requirements. Current rules can require economically related securities and derivatives to be held in separate accounts and margined under different regulatory regimes, forcing firms to post more collateral than the combined risk of their positions requires. A comprehensive framework would reduce these excess collateral demands and make it easier to extend cross-margining to additional products.
“Effective risk management looks at a portfolio’s net exposure, not just its individual positions,” said Jennifer Han, MFA Chief Legal Officer. “A more comprehensive cross-margining framework would align margin requirements more closely with actual risk, lower unnecessary costs for pensions, foundations, and endowments, and promote more efficient use of capital without compromising market resilience or investor protection.”
MFA also urged the Commissions to ensure cross-margining arrangements can withstand temporary operational disruptions. Temporary operational disruptions should not force investors to post additional collateral when the underlying risk of their positions remains unchanged. MFA recommended establishing contingency mechanisms that allow appropriate margin offsets to continue during temporary disruptions.
Read the full letter here.
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About the global alternative asset management industry
The global alternative asset management industry — including hedge funds, private credit funds, and hybrid funds — serves thousands of public and private pension funds, charitable endowments, foundations, and other global institutional investors. The industry provides portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets throughout the economic cycle.
About MFA
Managed Funds Association (MFA), based in Washington, D.C., New York City, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest it, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 180 fund manager members, including traditional hedge funds, private credit funds, and hybrid funds, that employ a diverse set of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors diversify their investments, manage risk, and generate attractive returns throughout the economic cycle.
